Stifel Report Gives Thorough Analysis on Decline of Carpet Market
St. Louis, MO, August 16, 2019-Analyst Stifel has released an in-depth analysis of the carpet market.
The company reports,
“With residential broadloom carpet units down three quarters in a row in the 7-9% range, it is a very different trajectory and leaves this segment of the market off greater than 10% in the last 18 months.
“If LVT was 12-13% of the flooring industry in 2018 and it is growing at a 25% rate in total, it is taking approximately $850 million of wholesale flooring sales annually. Since carpet is still the biggest share of flooring at roughly 45% in units in 2018, it is likely taking the largest hit in units.
“We know the home centers have (The Home Depot) or will (Lowe’s) reset their merchandise offerings in flooring recently. We believe that as much as half of the square footage devoted to carpet in the home centers in terms of display space has been replaced with hard surface. The decision to reset was clearly made well in advance of the execution and likely means that the home centers reduced inventories in carpet in front of the reset. Our sources indicate that the home center’s carpet business is off in the 30-40% range this year! If we assumed that the home centers were selling approximately 17% of the total residential broadloom market in units, and their rate of sale of carpet is down 30%, this implies an approximate 500 basis point decline in residential broadloom carpet volumes due solely to the home centers. We think this is what has occurred over the past 18 months approximately with the home centers. This means that somewhere around 40% of the decline in residential carpet units in the last 18 months is coming from the home centers!
“The replacement frequency of residential carpet in apartments has lengthened considerably. Our best source for this insight, who knows this business well, indicates that the replacement cycle for apartment units has almost doubled from 3.5 years to 6 over the past ten years. That is the bad news. The good news is we have 22 million rental units today versus only 15 million ten years ago. Our source indicates that as much as one-third of the units of residential broadloom carpet sold today still go to this market! While hard surface growth may have played a role in the elongated replacement cycle, the bigger culprit is the fact that people are renting longer. Flooring and new paint are done when a rental unit is vacated and up for re-rent. The difficulty younger adults are having in qualifying for a mortgage has played a huge role in this.
“If there is any good news, the carpet industry comparisons get much easier in Q4 when residential unit sales fell 7-8% last year. Q3 is a relatively difficult comparison though as residential unit sales in that quarter were relatively flat last year. Despite the tough comparison, our sources indicate Q3 residential carpet unit trends are materially improved through the first half of this quarter compared to the 8-9% decline experienced in the first half. While LVT has been taking share from other flooring and that will likely continue, we do not see a two-year stack or comparison of down 15% by the time we get to Q4. In other words, the industry will likely perform less poorly. In addition, the existing home sales turnover figures set up for a better second half of ‘19 than the first half and carpet is heavily skewed to retail or repair and remodel activity. Likewise, residential construction activity should provide a better second half of 19 than first.”
For the full report, click here.